Fortescue Metals Group

Fortescue weighs IPO for ore venture

Australian miner shortlists Hong Kong and Shanghai as the potential destination for listing of its Iron Bridge joint project with Baosteel

PUBLISHED : Monday, 08 April, 2013, 12:00am
UPDATED : Monday, 08 April, 2013, 3:17am

Fortescue Metals, the third-largest iron ore miner in Australia, is considering a listing of its joint venture with China's Baosteel in either Hong Kong or Shanghai.

Chief executive Neville Power said in a media briefing at the Boao Forum yesterday that the group was studying the feasibility of an initial public offering of FMG Iron Bridge, an iron ore project it jointly develops with Baosteel in Western Australia.

In selecting the listing destination, Power said, the group would take into account "the capacity of fund-raising" in the market. He said the funds raised would be used on the project's development, without disclosing further details.

In December, Fortescue said the Iron Bridge project was estimated to have about 5.2 billion tonnes of resources. Currently, the group owns 88 per cent of the project, while Baosteel owns the remaining 12 per cent.

Fortescue, a smaller rival of Australian iron ore giants Rio Tinto and BHP Billiton, is heavily reliant on exports to China. Last year, 60 per cent of the 100 million tonnes of iron ore it produced was sold to China, and this year it expects to raise output to 155 million tonnes, about two-thirds of which will be exported to China.

"Urbanisation in China is a key driver for the demand [for steel] going forward. China is expected to see [gross domestic product] growth of 7 to 8 per cent, which will translate into a roughly 3 to 4 per cent growth in demand for steel," said Power. Strong car sales and housing demand would also support the country's steel market in the long term, he added.

The price of iron ore has been falling since last year as the market cooled quickly due to an oversupply of steel around the world. Goldman Sachs said in a report this month that it had lowered its forecast for iron ore prices by 3 per cent to US$139 per tonne for this year. The downward trend would continue in the next two years, dropping to US$115 next year and US$80 the year after.

Power said he expected the iron ore price to fluctuate between US$120 and US$130 per tonne for the foreseeable future, and added that now was a good time to introduce Fortescue's advanced experience in supply-chain management to those Chinese steel manufacturers that were trying to upgrade equipment and raise production efficiency.